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Should all student loans be waived?


The following question, which appeared recently in the forum Quora [1], is set in the context of the U.S. but happens to be more generally applicable:

Q: The U.S. has 44 million borrowers who owe 1.5 trillion dollars in student loans. Should these loans be forgiven?

Response from Kathryn Acosta:

Points taken from a U.S. study: “The Macro-economic Effects of Student Loan Cancellation” by Scott Fullwiler, Stephanie Kelton, Catherine Ruetschlin, and Marshall Steinbaum [2,3]:

  1. The policy of debt cancellation could boost U.S. real GDP by an average of$86 billion to $108 billion per year. Over the 10-year forecast, the policy generates between $861 billion and $1,083 billion in real GDP (2016 dollars).
  2. Eliminating U.S. student debt reduces the average unemployment rate by 0.22% to 0.36% over the 10-year forecast.
  3. Peak U.S. job creation in the first few years following the elimination of student loan debt adds roughly 1.2 million to 1.5 million new jobs per year.
  4. The inflationary effects of cancelling the debt are macro-economically insignificant. In the Fair model simulations, additional inflation peaks at about

0.3 percentage points and turns negative in later years. In the Moody’s model, the effect is even smaller, with the pick- up in inflation peaking at a trivial 0.09 percentage points.

As you can see from the gist of this study, there are many more positives then negatives. Most of the negatives pertain to a possible backlash from those former students that have already paid off their loans who might complain about how unfair it is for those behind them in the education ladder to get their education free.

There is also an issue of moral hazard – that people will run up debt and then expect it to be cancelled. To these people I would argue that putting such a high price tag on education is robbing our country of needed talent. Demonstrated skill and talent should be the criterion for gaining admission to a college, not wealth and money – as it is today. As a person who has paid off two loans, I say let’s cancel all student debt.



Editor’s comments: Firstly, education at all levels is an investment in the nation’s future. And secondly, in terms of the educational costs, it may be said that those who gain college degrees and diplomas on the whole pay more tax over their lifetime than those who do not gain such qualifications. There- fore, assuming that education can be made

free of tuition and training fees and charges for all students, it may be argued that on the whole those who graduate from college and university courses will more than pay for the cost of their tuition and training by virtue of the extent to which their cumulative tax pay- ments exceed cumulative payments at the average tax rate over the same time span.

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